Key developments in the United States
In 2022, the US Department of Justice (DOJ) and the US Federal Trade Commission (FTC) (collectively, the US Antitrust Agencies) increased scrutiny on technology companies and digital services. In particular, the US Antitrust Agencies, buoyed by the White House, have embraced the ‘big is bad’ philosophy when assessing antitrust issues in the technology sector.
Leadership within the US Antitrust Agencies, namely FTC chair (Chair) Lina Khan and DOJ Antitrust Division Assistant Attorney General (AAG) Jonathan Kanter believe that traditional antitrust laws, such as the ‘consumer welfare standard’ are inadequate to address modern challenges facing the technology sector, and they are increasingly unified in developing ‘multidimensional’ approaches to challenging anticompetitive conduct and mergers in the tech space, including deals that are neither horizontal nor vertical and are instead ‘ecosystem-driven, concentric, or conglomerate’ deals.
As a result of these views, one of the key developments of 2022, was the DOJ’s and the FTC’s joint announcement to revise the agencies’ Horizontal and Vertical Merger Guidelines (the Merger Guidelines). This announcement is an attempt by US Antitrust Agency leadership to address what it perceives to be current gaps in merger enforcement of digital markets and digital gatekeepers, such as addressing zero-price dynamics, the competitive significance of data and network effects. This new approach to antitrust enforcement drives a strategic vision that aims to bring and win big cases against major technology companies, while developing new and creative ways to do so.
In addition to revising the Merger Guidelines, AAG Kanter and Chair Khan have promised aggressive enforcement to address what they believe to be ‘modern market realities’ in digital markets acquisitions. In March 2022, in separate speeches, AAG Kanter and Chair Khan each outlined strategies targeted at addressing competition in digital markets. In summary, their remarks focused on the following goals, which signal how US Antitrust Agencies and the Biden Administration will continue to pursue action against technology companies:
- closely scrutinise acquisitions of nascent competitors in digital markets, even if they are not ‘purely vertical or horizontal’ and consider concepts beyond foreclosure and exclusion when developing theories of harm in acquisitions of emerging rivals;
- assess ‘moat-building strategies’ and examine the ‘whole course of exclusionary conduct by dominant platforms,’ rather than as separate actions in isolation;
- focus on discriminatory strategies that digital platforms use to maintain their monopoly power, such as self-preferencing, restrictions on interoperability, data aggregation and unreasonable pricing for access; and
- develop early and swift remedies that prevent bad actors from achieving an early lead or locking up certain parts of the market.
In addition to these statements and proposed revisions to the Merger Guidelines, the US Antitrust Agencies have started to factor in labour, racial and other social considerations when assessing mergers and anticompetitive conduct. Beyond this, the US Antitrust Agencies have implemented several changes in the merger review and remedy process, including scrutiny of certain transactions that traditionally would not be scrutinised, more in-depth second requests, longer agency investigation periods (which implicate financing considerations and closing timelines) and refusal to consider divestitures in some instances.
In addition to these changes, the US Antitrust Agencies are actively using Section 2 of the Sherman Act when challenging mergers, and the DOJ is considering bringing criminal Section 2 cases despite the limited use of civil Section 2 cases prior to 2020. Collectively, these recent positions signal how the DOJ and the FTC will find aggressive and creative ways to enforce US antitrust laws against technology companies and digital platforms.
Despite this renewed focus and attention on technology and digital platform enforcement, serious questions remain about the capacity for the agencies to fulfil their vision. A key issue is the lack of resources for the agencies to bring and win large and complex cases. Lawmakers from both parties and in both chambers of the US Congress have introduced antitrust legislation signalling some bipartisan appetite for legislative antitrust reform to target tech companies and digital platforms.
There are at least seven separate bills across both chambers. Some provisions in the bills propose an increase in the fees charged to merging parties with the proceeds going to fund more aggressive enforcement, especially in the digital space. Others propose establishing a Bureau of Digital Markets within the FTC. Other bills propose amending the standards set forth in Section 7 of the Clayton Act and the removal of the requirement to define a relevant market unless explicitly required by another statute.
One of the key bills, the American Innovation and Choice Online Act, has the strongest bipartisan support. This bill has been introduced in the Senate, but the Senate Majority Leader, Senator Schumer, has not put it up for a vote and is not expected to in the short-term, citing concerns that it does not have the votes to pass. As such, the US Antitrust Agencies remain critically understaffed and under-resourced.
In addition, morale at the FTC has suffered in the past year, leading to the departures of several high-level leaders and staff within a number of bureaus.
In summary, the leadership of the US Antitrust Agencies have adopted a more aggressive vision for antitrust enforcement, especially in the digital realm, and despite their resource constraints, they are moving toward achieving their policy vision.
White House policy initiatives and developments
Under US President Joe Biden, the administration has ushered increased attention and cohesiveness to competition policy, with efforts to strengthen and coordinate antitrust enforcement across the US federal government. Over a year ago, on 9 July 2021, the White House issued the landmark Executive Order on Promoting Competition in the American Economy. The Order directed a number of government agencies – beyond the DOJ and the FTC – to adopt rules and regulations to accomplish the competition-enhancing goals set forth in the Order.
The Order aims to address the administration’s concerns about purported increased consolidation and abuse of market power. Among other initiatives, it encourages the DOJ and the FTC to challenge consummated mergers – including technology and digital platform mergers – that prior administrations did not challenge. It also encourages agencies to focus enforcement on a perceived lack of competition in labour markets, agricultural markets, healthcare markets and technology markets.
The Order establishes the White House Competition Council, which is tasked with implementing a ‘whole-of-government’ approach to competition policy. The White House Competition Council has been in force for a year, and since its establishment, it has brought unprecedented levels of coordination across the US federal government on competition policy. For example, in January 2022, the DOJ and the US Department of Agriculture released a statement of principles and commitments to ‘protect against unfair and anticompetitive practices’ in the agriculture sector.
In March 2022, the DOJ and the US Labour Department signed a memorandum of understanding designed to ‘protect workers from employer collusion, ensure compliance with the labour laws and promote competitive labour markets and worker mobility.’ In May 2022, the US Treasury Department’s Office of the Comptroller of the Currency announced efforts to work with the DOJ and other US federal banking agencies to review frameworks to analyse bank mergers.
The White House Competition Council has also continued to advance the notion that new frameworks are warranted to address ‘new industries and new technologies – including the challenges posed by the rise of the dominant Internet platforms.’ In remarks celebrating the one-year anniversary of the launch of the White House Competition Council, Brian Deese, Chair of the White House Competition Council and Director of the National Economic Council, emphasised that a ‘key area is promoting competition in the tech sector’ and urged the US Congress to pass the bipartisan tech antitrust legislation.
DOJ and FTC policy changes and initiatives
Buttressed by the White House Competition Council, the US Antitrust Agencies have implemented a number of policy changes and initiatives targeting technology companies. As noted above, the DOJ and the FTC announced a review of the Merger Guidelines in January 2022. They issued a public call, a ‘Request for Information,’ for comments on how the US Antitrust Agencies can modernise enforcement of antitrust laws.
Their questions to the public broadcast their focus on technology companies as they revamp the Merger Guidelines. For example, they specifically request comments on how the US Antitrust Agencies should view potential or nascent competitors, innovation and digital markets. They request information about how the guidelines should approach market definition in zero-price markets or negative-price markets, and they ask for views on ‘competition for attention’ and the ‘appropriate indicia of market power in complex and multi-sided markets’.
Although it is not clear when the US Antitrust Agencies will announce the new guidelines, the comment period concluded in April 2022, with the agencies receiving over 5,000 responses. In the meantime, the FTC’s and the DOJ’s statements in announcing review of the Merger Guidelines suggest how the FTC and the DOJ may begin to approach their analysis of technology mergers in the coming months.
In May 2022, the FTC and the DOJ conducted a ‘listening forum’ on the effects of mergers in the technology sector. The forum was an opportunity for AAG Kanter and Chair Khan to hear from smaller business leaders, investors and workers in the technology sector. During the forum, AAG Kanter and Chair Khan reiterated their commitment to antitrust enforcement in digital markets.
More generally, the US Antitrust Agencies have announced other policy changes that, while not specific to technology companies, will nonetheless have an impact. For example, the FTC recently rescinded the 1995 FTC policy statement that removed the requirement for prior approval as a matter of course. This policy meant that the FTC would only issue prior approval notice for cause. Now, however, the FTC is using this tool to target more conduct, especially in digital markets, as the rescinding of this policy could require a lengthy prior approval process even for transactions that would not be reportable under the Hart-Scott-Rodino Act (HSR).
As another example, in September 2021, the FTC issued a statement announcing that it would make the Second Request process ‘more streamlined and more rigorous’ to help the agency cope with the recent surge in merger filings. The FTC has promised ‘heightened scrutiny’ and a more analytically rigorous review of transactions.
In December 2021, speaking at the FTC and the DOJ workshop on labour markets, Chair Khan and AAG Kanter advocated for the US Antitrust Agencies to evaluate the effects of mergers in labour markets and how these transactions may affect workers’ wages and working conditions. In practice, this has meant Second Requests that are broader in scope, and more costly and time-consuming review processes for merging parties.
Both houses of Congress have proposed a raft of potential new bills to address competition in the digital arena. Most notably, the desire for reform has come from both Republicans and Democrats, despite the fractious nature of Congress. The following is a summary of key legislation introduced impacting digital markets:
- American Innovation and Choice Online Act: This bill would prohibit certain large online platforms from engaging in self-preferencing, unfairly limiting the availability on the platform of competing products from another business or discriminating in the application or enforcement of the platform’s terms of service among similarly situated users. The bill proposes restricting a platform’s use of non-public data obtained from or generated on the platform and prohibits the platform from restricting access to platform data generated by the activity of a competing business user.
- Augmenting Compatibility and Competition by Enabling Service Switching Act: This bill would require some of the most dominant social media platforms to make user data portable and their services interoperable with other platforms.
- Competition and Antitrust Law Enforcement Reform Act: Although not specific to digital markets, this bill proposes to remove the requirement that the FTC or the DOJ need to define a relevant market, which is particularly relevant to digital platforms, as it could make it easier for the agencies to bring and win lawsuits.
- Competition and Transparency in Digital Advertising Act: This bill would prohibit companies from owning more than one portion of the digital advertising ecosystem (e.g., buy-side, sell-side and ad exchange) if they process more than US$20 billion in digital ads.
- Consolidation Prevention and Competition Promotion Act: This bill would apply a stricter standard for permissible mergers by prohibiting mergers that create an appreciable risk of materially lessening competition or unfairly lower the prices of goods or wages because of a lack of competition among buyers or employers (i.e., a monopsony).
- Digital Platform Commission Act: This bill would establish a commission responsible for assuring ‘the fairness and safety of algorithms on digital platforms’ as well as promoting competition. It would also have the authority to conduct investigations, impose penalties and to set new rules, such as those that ensure moderation transparency and the protection of consumers.
- Ending Platform Monopolies Act: This bill would change the interlocking directorate rules under Section 8 of the Clayton Act to cover employees and agents of a digital platform. It would also prevent certain online platforms from offering certain products or services from another line of business that is owned or controlled by the platform (i.e., it would prevent Amazon.com from selling Amazon Essentials or Amazon basics).
- Merger Filing Fee Modernization Act: This bill would change pre-merger filing fees and would increase enforcement resources.
- Open App Markets Act: This bill prevents app stores from (1) requiring developers to use an in-app payment system owned or controlled by an app store as a condition of distribution or accessibility, (2) requiring that pricing or conditions of sale be equal to or more favourable on its app store than another app store or (3) taking punitive action against a developer for using or offering different pricing terms or conditions of sale through another in-app payment system or on another app store.
- Platform Competition and Opportunity Act: This bill would permit the US Antitrust Agencies to block acquisitions by dominant platforms that are direct or potential competitors or expand a platform’s market position.
- Prohibiting Anticompetitive Mergers Act: This bill would ban mergers valued at US$5 billion or more and deals resulting in market shares over 33 per cent for sellers or 25 per cent for employers, and deals resulting in highly concentrated markets under the 1992 Horizontal Merger Guidelines. This bill would also establish procedures for US Antitrust Agencies to conduct retrospective reviews and break up harmful deals.
- Trust-Busting for the Twenty-First Century Act: This bill proposes that acquisitions by ‘dominant digital firms’ (i.e., those with a ‘dominant market power’) be made presumptively illegal – short-circuiting the established presumption under the antitrust laws.
Of these bills, the American Innovation and Choice Online Act, sponsored by US Senator Amy Klobuchar (Democratic) and co-sponsored by US Senator Chuck Grassley (Republican) and other Republican and Democratic senators, has received the most traction, but it has not been put up to a vote owing to other legislative priorities.
Trends in decisional practice, including key investigations against tech companies
As part of the US Antitrust Agencies’ broader push to increase their enforcement in technology, the DOJ and the FTC have developed a much more sceptical and aggressive approach to digital enforcement. This trend is exemplified in several key lawsuits from the past year. Some key cases will be summarised in this chapter, and the ‘United States: Tech Merger’ chapter will analyse other key tech mergers in more detail.
The first is United States v. Google, which was brought by the DOJ and several states against Google on 20 October 2020. The DOJ alleges that Google has engaged in anticompetitive behaviour in search services and search advertising. In particular, the DOJ has focused on the use of self-preferencing in advertising on Google’s search results, as well as an alleged web of exclusivity agreements that tied users’ mobile searches to Google. As of October 2022, the case is still in discovery. The trial for the case is tentatively scheduled for September 2023.
The FTC has also sued Meta Platforms (formerly known as Facebook), alleging that Meta holds monopoly power in an alleged market for ‘personal social networking services’. On 19 August 2021, a US district court dismissed the FTC’s complaint as vague and lacking facts sufficient to support its allegations. On 8 September 2021, the FTC filed an amended complaint alleging the same product market. The US district court did not dismiss the amended complaint, and as at October 2022, the case is still in discovery.
On 1 August 2022, the court ordered FTC to categorise for Meta the features or activities available on Facebook, Instagram, WhatsApp and Messenger that are included or excluded from the FTC’s definition of ‘personal social networking’, and to supplement its response if it takes a different position on any such feature or activity in the future. Most recent is the FTC’s lawsuit to block Meta’s acquisition of Within Unlimited on 27 July 2022. That case will be analysed in more detail in the ‘United States: Tech Mergers’ chapter.
The DOJ is also considering bringing a second monopoly lawsuit against Google, this time focused on Google’s ad business and digital advertising practices. Google already faces a similar lawsuit filed by the attorneys general for 16 states and Puerto Rico in December 2020, alleging that Google monopolises the online digital advertising market. The DOJ’s lawsuit would come after years of DOJ investigation of Google’s alleged anticompetitive behaviour in the digital advertising market.
In addition to these tech merger cases, there are a number of vertical merger decisions with implications for technology and digital markets.
For example, in March 2021, the FTC filed an administrative complaint to block the acquisition of GRAIL by Illumina, alleging that this transaction would reduce competition for certain key cancer therapies. The FTC alleged that the merger would give Illumina the incentive and ability to disadvantage GRAIL’s multi-cancer testing competitors by raising their costs for, or by foreclosing them from, accessing Illumina’s must-have technologies. The parties maintained that this transaction would bring more innovation to the cancer market and would increase patient access to advance cancer therapies and tests. The parties decided not to wait for clearance from the FTC before closing and closed the deal on 18 August 2021. Trial began in August 2021, and on 1 September 2022, the administrative law judge (ALJ) issued an initial decision dismissing the FTC’s challenge. The ALJ found the FTC’s alleged evidence unconvincing with regard to Illumina’s acquisition of GRAIL substantially lessening competition or providing Illumina with an incentive to act in an anticompetitive way.
Even if this was true, the ALJ argued that Illumina’s actions would be effectively constrained by a binding ‘open letter’ (supply contract) it has with all its customers, including current GRAIL rivals, that provides substantial enforcement mechanisms to prevent Illumina from withholding supplies or ending relationships with competitors. Moreover, the ALJ noted that Illumina actually has an incentive to maintain positive relationships with GRAIL’s competitors since they could stop choosing to invest in Illumina’s platform, which would limit the further growth of Illumina’s sales.
In December 2021, the FTC sued to block US chip supplier NVIDIA’s US$40 billion acquisition of Arm Ltd semiconductor chips. The FTC alleged that the transaction would give one of the world’s largest chip suppliers control over key computing technology and design that rival firms rely on to develop their own competing chips. The FTC also alleged that the transaction would stifle innovation in next generation technologies, including those used to power data centres and driver assistance systems in cars. In February 2022, the parties terminated the transaction.
In January 2022, the FTC sued to block Lockheed Martin’s US$4.4 billion proposed vertical acquisition of Aerojet. The FTC alleged that the transaction would allow Lockheed to control critical components that could harm rivals and would further consolidate the defence and national security markets. In its complaint, the FTC observed that the ‘[t]he US missile industry is highly concentrated up and down the supply chain’ and that ‘it has unique characteristics that make it difficult—if not impossible—for prime contractors to switch to alternate suppliers for [the input technology].’ In the upstream relevant markets, there were effectively only two competitors: Aerojet and Northrop, with Aerojet as the only independent supplier of critical components because Northrop also competed downstream against Lockheed. In the downstream relevant markets, there were only four competitors: Lockheed, Northrop, Boeing and Raytheon. In February 2022, the parties terminated the transaction.
These cases signal an appetitive for bringing vertical challenges and show that the US Antitrust Agencies will not shy away from alleging vertical theories of harm when assessing digital markets.
In addition to these cases, there have been a number of other cases brought by private litigants against tech and digital market companies. These cases may have a bearing on other tech litigation and investigations initiated by the US Antitrust Agencies, as they could influence how the authorities view relevant product markets, competitive theories of harm and effects on innovation.